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November 14, 2012  Wed 11:10 AM CT

USG: SEE CHART GET CHAIN FIND STRATEGIES
One trader apparently thinks that the run is over in USG.

optionMONSTER's Depth Charge tracking program detected the purchase of about 4,000 December 26 puts for $2.05 to $2.15. Volume was more than 20 times open interest at the strike, so this is clearly a new position.

The trader has now locked in a $26 selling price on drywall maker, no matter how low the shares go. That provides inverse leverage to the stock price, so the put buyer is effectively short the name. (See our Education section for more on why buying puts often makes more sense than selling shares.)

USG is down 0.63 percent to $25.31 in midday trading. The stock more than quadrupled in value between October 2011 and November 2012 as investors priced in a stronger North American housing market, but it has been falling since.

The unusual thing about today's activity is that the investor is using in-the-money contracts, which more closely track drops in the stock price. This suggests that he or she is a speculative bear rather than a shareholder looking to hedge a long position.

Puts outnumber calls by 9 to 1 in the name so far in the session, according to the Depth Charge.
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Education & Strategy

Sweet Spot Exceptions

As discussed last week, when using the Stock Replacement Strategy to replace a stock position to trade direction, we want to use an option that has very similar characteristics to the stock. We talked about using the deep in-the-money, 80 to 85 delta option that is similar in the Greeks and has relatively little extrinsic value which tends to work against us in stock directional trading.

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